There’s a fresh wave of the virus and a new strain has been found in the UK. Is it time to protect profits and maybe take some profits off the table on another 200 point fall ?
Here are the corrections which everybody has been waiting for with bated breath and talking about for the last 2,000 points that the market has been going up. Whenever we have such corrections, we start looking at all the negative data which has always been around for some time. I do not think this is really led by the so-called new strain of virus.
As we go towards the vaccine, as we go towards increased immunisation levels, some push backs are coming. You want to get some reactions coming in terms of the adverse effects of the vaccine plus and I just do not think that the markets are really reacting to this. The point is that we have had a fair rise and some element of profit booking is very natural. In the last 10 days of the year, typically a lot of FPIs close their books for the year and there might be some elements of profit booking.
A correction in the markets — even in bull markets like the one that we are seeing today — of anywhere between 5% and 10% is par for the course and has happened many times. Whether it is going to be a deep correction or just a one-day affair is difficult to say but one can be sure that if there is a correction, there are enough people who have been waiting at the sidelines who missed the big rally and who will also be stepping in to buy. So, I would be surprised to see a far deeper correction in the short term.
What would you be tempted to buy if you wanted to add on corrections?
It is more of the same. One would look at the top tier financial names in such corrections, especially among the private sector banks as well as a couple of the NBFC names. You will probably buy into some of the pharma names and if you get the chemical space correcting sizably, I would look to buy there.
Also, if one gets any of these irrigation companies, one would look at it and then there could be a spate of bottom up stories that one can buy into.
What is your stake on the PSU space? SCI would be inviting bids this week for privatisation. Would you be convinced given the kind of progress that we have seen on the divestment front?
The divestment is probably the only trigger for which we would look to invest in these PSUs. However, when you start looking at the sector, do not forget you have a Great Eastern Shipping sitting there, trading at really cheap valuations. The fact is this sector normally does not get a valuation. For our clients and portfolios, we would prefer to look at companies which have earnings growth, strong return numbers and cash flows and we normally do not play for such event based strategies where there is tremendous uncertainty.
You could have been playing BPCL a year ago and you are still waiting for the final disinvestment to happen. We would prefer to focus on strong earnings growth-oriented companies more than anything else.
Coming to vaccines, doesn’t that give a bit of an edge to some of the pharma companies in the long haul?
Absolutely! The pharma space will continue to do well. It has had many years of so-called flat to downturn-based performance and it has only just come back this year. There is enough space led by the fact that domestically November was not a great month but domestically, even pharma sales have been good.
The vaccine, of course and the various people who will benefit from the vaccine are going to play a big role in the next few years because it is not going to be easy to vaccinate the whole population that we have in India and globally. The US generics market also consolidated and the pricing downturn that one saw has stabilised. Even the so-called FDA pullbacks to a lot of companies has reduced in terms of certifying their plants and facilities. Overall, pharma is going to continue to do well and if you were to get pharma names in the correction, you should buy that up.
